ECO201 Chapter 14 Exam Solution
• Question 1
1 out of 1 points
The economy is initially in long-run equilibrium. The AD curve shifts to the
... [Show More] right and the price level rises. Assuming that the economy is self-regulating, the SRAS curve will shift to the left and the price level will rise even further. If the price level now remains constant, what have we witnessed?
Selected Answer: b.
one-shot demand-induced inflation
Answers: a.
continued supply-side inflation
b.
one-shot demand-induced inflation
c.
one-shot inflation that was partly demand-induced and partly supply-induced
d.
continued demand-induced inflation
e.
one-shot supply-induced inflation
• Question 2
1 out of 1 points
In the monetarist version of the AD-AS framework, an increase in the money supply produces a __________ shift of the __________ curve.
Selected Answer: d.
rightward; AD
Answers: a.
leftward; SRAS
b.
rightward; SRAS
c.
leftward; AD
d.
rightward; AD
• Question 3
1 out of 1 points
The chief difference between one-shot inflation and continued inflation is that
Selected Answer: a.
one-shot inflation is a single increase in the price level and continued inflation is a sustained increase in the price level.
Answers: a.
one-shot inflation is a single increase in the price level and continued inflation is a sustained increase in the price level.
b.
one-shot inflation is long and continued inflation is short.
c.
Keynesians believe all inflations are one-shot inflations and monetarists believe all inflations are continued inflations.
d.
monetarists believe all inflations are one-shot inflations and Keynesians believe all inflations are continued inflations.
• Question 4
1 out of 1 points
In the equation of exchange, "Q" stands for
Selected Answer: d.
Real GDP.
Answers: a.
quality.
b.
the interest rate.
c.
GDP.
d.
Real GDP.
• Question 5
1 out of 1 points
According to the equation of exchange, if GDP equals $4 trillion and the money supply equals $1 trillion, the velocity of money
Selected Answer: b.
must be 4.
Answers: a.
must be 0.25.
b.
must be 4.
c.
must be 0.25 trillion.
d.
must be 4 trillion.
e.
cannot be determined without knowing what the price level is.
• Question 6
1 out of 1 points
Between 1890 and 1914, the gold stock of the world _______________ and world prices (in general)
Selected Answer: e.
doubled; increased.
Answers: a.
tripled; increased.
b.
tripled; decreased.
c.
rose by 50%; increased.
d.
doubled; decreased.
e.
doubled; increased.
• Question 7
1 out of 1 points
In the equation of exchange, the letter "V" stands for
Selected Answer: c.
velocity.
Answers: a.
volume.
b.
validity.
c.
velocity.
d.
variance.
• Question 8
1 out of 1 points
The simple quantity theory of money predicts that if
Selected Answer: a.
the money supply rises by 10 percent, then the price level rises by 10 percent.
Answers: a.
the money supply rises by 10 percent, then the price level rises by 10 percent.
b.
the money supply falls by $300, then GDP rises by $300.
c.
GDP rises by $400, then the money supply rises by $400.
d.
the money supply rises by $200, then GDP falls by $200.
• Question 9
1 out of 1 points
Which of the following statements is true?
Selected Answer: b.
Monetarists believe that the economy is self-regulating.
Answers: a.
Monetarists believe that the government should be very involved in managing and directing the economy.
b.
Monetarists believe that the economy is self-regulating.
c.
There is very little difference between monetarist and Keynesian thought.
d.
Monetarists hold that velocity is constant.
e.
a and c
• Question 10
1 out of 1 points
In the simple quantity theory of money, Real GDP and velocity are assumed to be constant.
Selected Answer: True
Answers: True
False
• Question 11
0 out of 1 points
Based upon the equation of exchange, which of the following (ceteris paribus) is most likely to bring about inflation?
Selected Answer: d.
a and b
Answers: a.
An increase in the money supply.
b.
A decrease in velocity.
c.
An increase in Real GDP.
d.
a and b
e.
a and c
• Question 12
1 out of 1 points
Exhibit 14-2
Refer to Exhibit 14-2. The economy moves from point 1 to 2 to 3 to 4 to 5 to 6 to 7. What explains this?
Selected Answer: c.
an initial decrease in SRAS, followed by alternating rises in AD and decreases in SRAS
Answers: a.
continued decreases in SRAS
b.
an initial rise in the price level, followed by a decrease in SRAS, and then alternating increases in AD and decreases in SRAS
c.
an initial decrease in SRAS, followed by alternating rises in AD and decreases in SRAS
d.
continued increases in AD
e.
continued increases in SRAS
• Question 13
1 out of 1 points
A decrease in the interest rate due to an increase in the supply of loanable funds is referred to as the __________ effect.
Selected Answer: b.
liquidity
Answers: a.
expectations
b.
liquidity
c.
income
d.
a and c
e.
a, b and c
• Question 14
1 out of 1 points
The equation of exchange
Selected Answer: b.
can be turned into a theory of the macroeconomy if certain assumptions are made about some of its variables.
Answers: a.
is a theory of the macroeconomy as it stands.
b.
can be turned into a theory of the macroeconomy if certain assumptions are made about some of its variables.
c.
cannot be turned into a theory of the macroeconomy.
d.
is a theory in microeconomics as it stands.
• Question 15
1 out of 1 points
Which of the following is consistent with the equation of exchange?
Selected Answer: e.
a, b and c
Answers: a.
Total spending must equal the total sales revenues of business firms.
b.
The money supply multiplied by velocity must equal GDP.
c.
The money supply multiplied by velocity must equal the price level times Real GDP.
d.
a and b
e.
a, b and c
• Question 16
1 out of 1 points
Both the monetarist view of the economy and the simple quantity theory of money hold that velocity is constant.
Selected Answer: False
Answers: True
False
• Question 17
1 out of 1 points
If Real GDP is $8,000, the money supply is $3,100, and velocity is 4, then the price level is
Selected Answer: a.
1.55.
Answers: a.
1.55.
b.
3.33.
c.
1.92.
d.
4.69.
• Question 18
1 out of 1 points
In the equation of exchange, GDP divided by the money supply is equal to
Selected Answer: c.
V.
Answers: a.
Q.
b.
P.
c.
V.
d.
M.
• Question 19
1 out of 1 points
The change in the interest rate due to a change in the supply of loanable funds is referred to as the __________ effect.
Selected Answer: d.
liquidity
Answers: a.
income
b.
expectations
c.
real
d.
liquidity
• Question 20
1 out of 1 points
Suppose we are at a long-run equilibrium point in an AD-AS model. Then the money supply falls. In the short run, is there any difference between what happens in the simple quantity theory of money (SQTM) version and the monetarist version of the model?
Selected Answer: b.
In the monetarist version, Real GDP falls; in the SQTM version, it does not.
Answers: a.
There is no difference.
b.
In the monetarist version, Real GDP falls; in the SQTM version, it does not.
c.
In the SQTM version, Real GDP falls; in the monetarist version, it does not.
d.
In the SQTM version, the price level falls; in the monetarist version, it does not.
e.
In the monetarist version, the price level falls; in the SQTM version, it does not.
• Question 21
1 out of 1 points
The spread (difference) between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.
Selected Answer: True
Answers: True
False
• Question 22
1 out of 1 points
When Milton Friedman said that "inflation is always and everywhere a monetary phenomenon," he was referring to
Selected Answer: b.
continued inflation.
Answers: a.
one-shot inflation.
b.
continued inflation.
c.
a and b
d.
neither a nor b
• Question 23
1 out of 1 points
The simple quantity theory of money predicts that changes in
Selected Answer: c.
the money supply lead to strictly proportional changes in the price level.
Answers: a.
the price level lead to strictly proportional changes in velocity and GDP.
b.
the money supply do not affect the price level.
c.
the money supply lead to strictly proportional changes in the price level.
d.
velocity lead to nearly proportional changes in the money supply.
• Question 24
1 out of 1 points
If GDP is $9,000 billion and the money supply is $1,800 billion, velocity is approximately
Selected Answer: d.
5.00.
Answers: a.
0.20.
b.
6.00.
c.
4.15.
d.
5.00.
e.
There is not enough information provided to answer this question.
• Question 25
1 out of 1 points
Exhibit 14-1
Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a fall in velocity under monetarist assumptions?
Selected Answer: d.
B-D-A
Answers: a.
B-A
b.
A-E-B
c.
A-D-B
d.
B-D-A [Show Less]